Doctrine of Proportionality applied to restore GST Registration on the condition of the Taxpayer making complete payment

The Bombay High Court has ruled that permanently cancelling a GST registration due to procedural errors, like not filing returns or paying dues on time, is disproportionate. This is especially true if the taxpayer has since paid all outstanding amounts, including interest and late fees, and complied with court-directed CSR contributions. The court emphasised that such cancellations harm both the taxpayer and the revenue by preventing business and future tax collection.

The Hon'ble Bombay High Court in the case of Azaria Corp LLP v. The Deputy Commissioner of State Tax [Writ Petition No. 443 of 2025, order dated September 20, 2025] held that permanent cancellation of GST registration for procedural lapses, such as failure to file returns or timely pay dues, is disproportionate if the taxpayer has subsequently paid all outstanding amounts including dues, interest, and late fees, and made additional CSR contribution as directed by the Court.​

Facts:

Azaria Corp LLP ("the Petitioner"), an assessee under GST, had its registration cancelled due to non-filing of returns and non-payment of the GST dues.

The Deputy Commissioner of State Tax ("the Respondent") cancelled the Petitioner's registration for failure to comply with the procedural requirements under the CGST Act/Rules.

The Petitioner contended that there was a bona fide reason for delay in filing returns and payment of dues, but since then, it had remediated by paying the entire amount, including interest and late fees. The Respondent contended that in similar previous cases involving restoration was based on the revenue's concession and left the matter to the Court's discretion.

The Petitioner, aggrieved by permanent cancellation despite payment of all outstanding amounts and inability to restore business activities, approached the court by writ petition under Article 226.

Issue:

Whether permanent cancellation of GST registration is legally sustainable when the taxpayer has subsequently paid all outstanding taxes, interest, and late fees after initial non-filing of returns, and whether restoration would better serve both the taxpayer's and revenue's interests?

Held:

The Hon'ble Bombay High Court in Writ Petition No. 443 of 2025 held as under:

· Observed that, the Petitioner had paid all outstanding dues, interest, and late fees, as well as an additional amount as part of its corporate social responsibility undertaking.​

· Noted that, permanent cancellation of registration is not in the interest of either the taxpayer or the revenue, as it prevents business continuation and collection of future GST.

· Noted that, assessment of penalty or further liability may be communicated within 15 days of this order, and the Petitioner must pay such additional amounts promptly.

· Noted that the principle of proportionality must be applied, and such GST restoration would also benefit Revenue by receiving GST as assessee assumes its business

Our Comments:

The High Court's order is aligned with the doctrine of proportionality as articulated in Bimal Kishore Sahu v. Additional Commissioner, GST (Appeals), BBSR&Anr [2024 SCC OnLIne 2199], where delay in compliance was condoned once the taxpayer paid all statutory dues; permanent cancellation was found disproportionate. The reasoning here favours both revenue interests and taxpayer fairness, diverging from rigid administrative action in cases of procedural delay.

The restoration consistent with Stanley Aphonsus D'silva v. The State of Maharashtra through the Government Pleader & Ors [WPL/29525/2024 decided on March 17, 2025] which treats bona fide delay with remedial compliance as sufficient for relief, reinforcing judicial preference for substance over form, especially given the public interest in GST collection.

Relevant Provisions:

Rule 21 of the CGST Rules, 2017:

Rule 21. Registration to be cancelled in certain cases.-

"The registration granted to a person is liable to be cancelled, if the said person, -

(a) does not conduct any business from the declared place of business; or

(b) issues invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made thereunder; or

(c) violates the provisions of section 171 of the Act or the rules made thereunder.

(d) violates the provision of rule 10A

(e) avails input tax credit in violation of the provisions of section 16 of the Act or the rules made thereunder; or

(f) furnishes the details of outward supplies in FORM GSTR-1 as amended in FORM GSTR-1A, if any, under section 37 for one or more tax periods which is in excess of the outward supplies declared by him in his valid return under section 39 for the said tax periods; or

(g) violates the provision of rule 86B.

(ga) violates the provisions of third or fourth proviso to sub-rule (1) of rule 23; or

(h) being a registered person required to file return under subsection (1) of Section 39 for each month or part thereof, has not furnished returns for a continuous period of six months;

(i) being a registered person required to file return under proviso to subsection (1) of section 39 for each quarter or part thereof, has not furnished returns for a continuous period of two tax periods."

OFFICIAL JUDGMENT COPY HAS BEEN ATTACHED